# Methods of Dividing Profit and Loss

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Methods of Dividing Profit and Loss
Arbitrary Ratio (any agreed ratio) Capital Ratio Based on any of the following: Initial or original capital Beginning yearly capital Ending yearly capital Average Capital Interest on investments, balance in an agreed ratio

METHODS OF DIVIDING PROFIT AND LOSS
4. Salaries to partners, balance in an agreed ratio 5. Interest on investments, salaries to partners, balance in an agreed ratio 6. Interest on investments, salaries to partners, bonus to managing partner, balance in an agreed ratio. Where bonus is expressed as: A distribution of profit (certain percentage of income) An expense (a certain percent of net income after bonus)

GIVEN: A, Capital P300,000 B, Capital ,000 C, Capital ,000 Net Income P90, Arbitrary Ratio ( 3:2:1) A, Drawing (3/6 x 90,000) P45,000 B, Drawing (2/6 x 90,000) ,000 C, Drawing (1/6 x 90,000) ,000 GIVEN: A,CAPITAL B,CAPITAL Jan , ,000 Apr ,000 Jun ,000 Oct (200,000) Net Income P300,000

1.a) Initial or Beginning Capital
Income & Expense Summary P300,000.00 A,Drawing (300/500 x P300,000) P180,000.00 B, Drawing (200/500 x P300,000) ,000.00 b) Ending Ratio Income & Expense Summary ,000.00 A, Drawing (350/600 x P300,000) P175,000.00 B,Drawing (250/600 x P300, ,000.00 c) Average Capital A,Capital / , x 6mos ,800,000 6/ , x 3mos ,650,000 10/ , x 3 mos ,050,000 Total ,500,000 Dividend by 12 months ,000

B, Capital / , x mos ,000 4/ , x mos ,250,000 Total ,850,000 Divided by 12 mos ,500 INTEREST ON PARTNERS CONTRIBUTION BALANCE DISTRIBUTED IN AN AGREED RATIO GIVEN: A, CAPITAL , B,CAPITAL ,000 NET INCOME : P300, INTEREST 12% RATIO 2:1 A,DRAWING B,DRAWING 12% interest on capital (12% x 350,000) ,000 (12% x 250,000) ,000 Balance at 2:1 (2/3 x 228,000) ,000 (1/3 x 228,000) ,000 TOTAL , ,000 Income and Expense Summary 300,000 A, Drawing ,000 B, Drawing ,000

Case 2 Net Income is P60,000 A, Drawing B,Drawing 12% interest on Contribution (12% x 350,000) ,000 (12% x 250,000) ,000 Balance based ib 2:1 (2/3 x 12,000) ( 8,000) (1/3 x 12,000) ( 4,000) TOTAL , ,000 ENTRY : Income and Expense Summary ,000 A, Drawing ,000 B, Drawing ,000 To distribute interest to partners. A,Drawing ,000 B, Drawing ,000 Income and Expense Summary ,000 To distribute the remaining profit based on arbitrary ratio.

COMBINATION OF INTEREST AND SALARIES, BALANCE IN AN AGREED RATIO
Case 3 : A, Capital P500, B, Capital P300,000 P&L ratio agreement : 12% Interest on Capital balances, Salary of 15,000 per month to B Balance to be divided equally NET LOSS P24,000 A, Drawing B,Drawing Total 12% Interest on capital 60, , ,000 Salary to B 15,000 per month , ,000 Balance equally (P300,000/2) (150,000) (150,000) (300,000) Total (90,000) P66, P 24,000 Entries: Income and Expense Summary ,000 A, Drawing 60,000 B,Drawing ,000

Income and Expense Summary 180,000
B, Drawing ,000 A,Drawing 150,000 B,Drawing 150,000 Income and Expense Summary 300,000

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